Applicability of duty exemption under HTSUS subheading 9801.00.20 to garments; loan; photography

HQ W559312 July 27, 1995 CLA-2 R:C:S W559312 MLR CATEGORY: Classification TARIFF NO.: 9801.00.20 Ms. Connie DeFino Affiliated Customs Brokers Ltd. 6470 Northam Drive Mississauga, Ontario L4V 1H9 Canada RE: Applicability of duty exemption under HTSUS subheading 9801.00.20 to garments; loan; photography Dear Ms. DeFino: This is in response to your facsimiles of July 11 and July 26, 1995, requesting a ruling on behalf of Quebecor Studios, concerning the free entry of mutilated garments. FACTS: Garments of U.S. or foreign-origin will be shipped from Montgomery Ward in the U.S. to Quebecor Studios in Canada. Before leaving the U.S., the garments are stamped with the word “sample” and swatches are cut from them. In Canada, the garments will be photographed. Montgomery Ward states it was the importer of the foreign-origin garments shipped to Canada. It is also stated that the commercial invoices and bill of lading covering the shipments to Canada will indicate that the garments are on a short term loan to Quebecor, Studio, Etobicoke, Ontario, Canada, for photography purposes only, and that the garments will be returned to Montgomery Ward upon completion of the photography. ISSUE: Whether the garments previously imported by Montgomery Ward, shipped to Quebecor Studios in Canada on loan for photography purposes are eligible for the duty exemption under subheading 9801.00.10 or subheading 9801.00.20, HTSUS, when returned to the U.S. LAW AND ANALYSIS: Subheading 9801.00.20, HTSUS, provides duty-free treatment for: [a]rticles, previously imported, with respect to which the duty was paid upon such previous importation or which were previously free of duty pursuant to the Caribbean Basin Economic Recovery Act or Title V of the Trade Act of 1974, if (1) reimported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, after having been exported under lease or similar use agreements, and (2) reimported by or for the account of the person who imported it into, and exported it from, the United States. Section 10.108, Customs Regulations (19 CFR 10.108), provides, in relevant part, that free entry shall be accorded under subheading 9801.00.20, HTSUS, whenever it is established to the satisfaction of the district director that the article for which free entry is claimed was duty paid on a previous importation, and is being reimported by or for the account of the person who previously imported it into, and exported it from the U.S. In Headquarters Ruling Letter (HRL) 553676 dated February 28, 1986, a mold was imported from Portugal into the U.S., and subject to dutyfree treatment under the Generalized System of Preferences (GSP) by Max Klein Company of Wisconsin. The mold was subsequently exported to a Canadian manufacturer under a lease agreement by Bow Plastics Ltd in an exclusive right and license agreement, which gave Bow Plastics the authority for the transportation of the molds back and forth and the payment of duties. The Max Klein Company stated that the described mold was being leased to Bow Plastics and the lease agreement was considered valid. The mold was imported into the U.S. by Bow Plastics from Canada, and duty paid. The mold was later returned to Bow Plastics in Canada for a second production run and again reimported by Bow Plastics. Dutyfree treatment was granted because the mold was imported into the U.S. on both occasions from Canada by the Customs agent acting on behalf of his principal, Bow Plastics, who in turn was responsible for the transportation of the molds, back and forth, and given the license to make and sell planters produced from the mold and to pay the duty. The scenario presented in this case is analogous to HRL 553676. Montgomery Ward states that it is the importer of the garments which are subsequently shipped to Canada. Furthermore, the garments will not be advanced in value by the photography operations. Moreover, in a recent case interpreting item 801.00, Tariff Schedules of the United States (TSUS) (the precursor provision to subheading 9801.00.20, HTSUS), the Court of International Trade stated that the purpose of this provision is "to eliminate an assessment of duty which has the appearance of double taxation." See Werner & Pfleiderer Corp., v. United States, Slip Op. 93166. The court in Werner also stated that "the provision concerning goods exported under lease, in particular, is not 'the sort of exemption from duties which must be narrowly construed.'" Accordingly, we find that the loan of the garments to Quebecor Studios constitutes a similar use agreement, and provided the garments are reimported by or for the account of Montgomery Ward the foreign-origin garments will qualify for duty-free treatment under subheading 9801.00.20, HTSUS. Garments imported under this tariff provision are not subject to visa/quota requirements. In addition, subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. Accordingly, the U.S.-origin garments photographed and returned to the U.S. may be entered under subheading 9801.00.10, HTSUS. HOLDING: Based on the information submitted, we find that the foreign-origin garments previously imported by Montgomery Ward, shipped to Quebecor Studios in Canada on loan for photography purposes will be eligible for the duty exemption under subheading 9801.00.20, HTSUS, when returned to the U.S. provided they are reimported by or for the account of Montgomery Ward. Additionally, the U.S.-origin garments may be eligible for duty-free treatment under subheading 9801.00.10, HTSUS, provided the documentary requirements of 19 CFR 10.1 are satisfied. Copies of 19 CFR 10.108 and 19 CFR 10.1 are enclosed. Sincerely, John Durant, Director Commercial Rulings Division Enclosures